Thursday, February 17, 2011

Bank stress tests – the Fed has ordered the 19 largest US banks to stress test their balance
sheets for recession conditions, w/unemployment rising above 11%. The tests consider three economic
scenarios and tests the bank’s income statement and balance sheets. Banks submitted their plans last
month and are due to hear back from the Treasury/Fed sometime in mid-Mar. A bunch of banks could
announce plans to return capital to shareholders following these tests. – Bloomberg
US companies repatriating cash – a bunch of major US companies, inc. ORCL, PFE, and others,
are preparing a major lobbying campaign aimed at pressing Congress into granting a tax holiday that
would permit US firms to bring cash back to the US at no or low rates. “Their aim is to win a one-year
tax amnesty on their foreign earnings, allowing them to repatriate that money at a tax rate of about 5%,
instead of the 35% they face now” – Fortune
Munis – neg. FT article – “downgrades loom for US states” – according to a report out Thurs
from Fitch, a new rating method that places greater weigh on ballooning pension liabilities could lead to
negative rating actions. – FT
In the Middle East, tensions eased somewhat in Egypt after Iran cancelled its plan to send
warships through the Suez Canal (this headline first broke during trading yesterday & sparked some
worries) although the situation in Bahrain & Libya remains tense. Bahrain officials cracked down on
protestors overnight (per the NYT, “without warning, hundreds of heavily armed riot police officers
rushed into Pearl Square early Thursday”) and opposition groups are now planning a massive
demonstration for Sat while in Libya protestors are planning a massive demonstration for today during
what is being billed as "a day of rage." – JPM
Spending – a bipartisan group of Senators is considering introducing new legislation that would
trigger new taxes and spending cuts if a set of budget goals fails to be met. The bill would build on the
work done by the Obama’s deficit commission. The senators plan on dealing w/the budget in 4 groups:
1) overhauling the tax code; 2) cutting discretionary spending; 3) dealing w/Medicare and Medicaid; 4)
dealing w/Social Security. – WSJ
Interest the new budget monster - Obama budget plan shows interest owed on national debt
quadrupling in next decade. Starting in 2014, net interest payments will surpass the amount spent on
education, transportation, energy and all other discretionary programs outside defense. In 2018, they
will outstrip Medicare spending. – Washington Post
Obama traveling to West Coast today; will meet w/a bunch of tech execs (inc. Steve Jobs from
Apple, Mark Zuckerberg from Facebook, and GOOG’s Schmidt; GE’s Immelt will also be there). The
president will discuss the U.S. economy and job creation. – Bloomberg
Government shutdown? Congressional officials downplay the chances of a shutdown later in
Mar – Republican Sen Kyle promised that the “government is going to shut down….nobody is talking
about shutting the government down”. Despite Kyle’s remark, there continues to be a wide gap
between Dems and Republicans when it comes to spending. The current continuing resolution (CR) will
fund the government through Mar 4. – CBS
Robocop statue potentially to be erected in Detroit. – London Telegraph